Study: the Blockchain Can Solve the Music Streaming Industry’s Biggest Problem

A new report by the Berklee College of Music and the Institute of Creative Entrepreneurship Rethink Music estimates that around 20 to 50 percent of money generated by streaming is never returned to the artists.

A new report by the Berklee College of Music and the Institute of Creative Entrepreneurship Rethink Music estimates that around 20 to 50 percent of money generated by streaming is never returned to the artists. The initiative proposed the blockchain as a solution to tally the transactions and provide greater transparency.

Royalties

The report analyzed the costs that are distributed between parties that contribute in the distribution of music.

“Of the $15 billion in global recorded music revenue for sound recordings reported by the IFPI for 2014, only a small portion of the money beyond the initial recording advances ultimately makes its way to artists as ongoing revenue,” reads the abstract. “Faster release cycles, proliferating online services, and creative licensing structures make finances and revenue even more complex to understand and manage.”

Two types of royalties are paid out each time a song is played: one to the artist or the label company, and the second to the song writer or the company that holds the rights to the song.

“The Rethink Music/Berklee study is a thing of beauty ... and much needed," stated musician David Byrne. "The music business is notoriously complicated, but ... the recommendations give one hope - that there is indeed a way for this industry to flourish and benefit everyone involved.”

Streaming services like Spotify do not pay the label companies directly but instead, “rely on organizations that manage royalties for large groups of copyright owners. At each step along the line, another company takes a cut,” explains Bloomberg.

The initiative laid out the cost distribution in this diagram:

There are many possible ways in which a large part of the revenue is not passed to the rightful owners. This usually happens when record labels who own the rights to a song take royalties in exchange for streaming services, which are usually not shared with musicians.

While it is unknown to most people, streaming deals include fees that are paid to label companies instead of the artists. The research estimates that hundreds of millions of dollars are lost under the current system, in which musicians could not get hold of their revenues and the owners of a song are not accurately identified.

“Lawmakers both in Europe and North America should take note as they look to promote and foster the interests of creators in the digital age, shielding them from the practices of major rightsholder corporations who distort the music market for their own gain. The mistakes of the post Napster era should not be allowed to roll on, to the detriment of many and the benefit of few.”

Using the Blockchain

The research proposed an alternative solution to the problem between streaming and label companies. By keeping a public ledger of transactions, the deals between labels and streaming companies would not require third party organizations to take a cut of the revenues.

Furthermore, by implementing blockchain technology, the payments would be automatically separated and distributed instantly.

This system would nullify problems between record label companies and streaming companies like Spotify. In November 2014, Taylor Swift was paid less than US$500,000 for domestic streaming for a year, when Swift should have received more than US$6 million according to Spotify CEO, Daniel Ek.

"Don't forget this is for the most successful artist in music today. What about the rest of the artists out there struggling to make a career? Over the last year, what Spotify has paid is the equivalent of less than 50,000 albums sold."

The dispute between Taylor Swift, Spotify and her Label company arose because of the same problem discussed above – intermediaries siphoning off money that could go directly to the artists. By implementing the blockchain, dependency on third party organizations would be reduced and artists would be able to take advantage of increased public ledger transparency and receive the share of revenue they deserve.